Estimating Future Option Prices from Today’s Option Chain

Summary

The document asks whether a listed option with a matching moneyness and remaining time to expiry can serve as a rough estimate for an option price at a future date. Its example considers a call with a year to expiry and asks whether, after nine months, its value can be approximated using today’s price for a three-month call that is in the money by the expected amount. The alternative mentioned is constructing and interpolating a volatility surface.

The text poses the estimation problem but provides no answer, pricing method, or empirical evidence. Its proposed comparison assumes a future underlying price and implicitly treats today’s option-chain quote as informative about a future market state. That alone does not establish equivalence: future volatility, rates, dividends, and the option’s actual future market conditions may affect value. The document is best read as a question about assumptions behind a quick proxy, not as validation that the proxy works.

Key ideas

• The document asks whether today’s option quotes can approximate the future value of an option that is not yet traded.
• Its example matches remaining maturity and expected moneyness at a future date.
• A volatility surface is raised as a more involved alternative, but no comparison or evidence is provided.
• The proposed proxy does not account explicitly for how market inputs may change before the future valuation date.

Tags

# Can option chain data be used as a quick and dirty substitute for proper pricing calculations for non-traded options?


# Can option chain data be used as a quick and dirty substitute for proper pricing calculations for non-traded options?












I wonder if the option chain data that is published everyday by websites like Yahoo finance can be used to quickly price options that are not yet traded? So in other words, to estimate option prices in the future?

For example, can I take the price of a call that is USD 5 in the money today and expires in 3 months, as a proxy for a call on that same stock that is USD 5 in the money and expires in 3 months, 9 months from now. So that I am saying: Price_now = Price_then.

For example, suppose I have the following information about a 12-month call option and I want to estimate its price 9 months from today. The following data is known:

— spot price of underlying: 50

— strike: 100

— maturity: 12 months

— expected spot price in 9 months: 110

— date of option price of interest: 9 months from today (so it will mature 3 months after that)

Of course I could try to construct a volatility surface and try to interpolate.

But can I price this option by simply taking today’s option chain data for the stock and checking the price of a call with a 3 month maturity (12 -/- 9) that is 10 in-the-money (110 -/- 100)?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.